Staying profitable as a small or medium-sized business is enough of a challenge that you don’t want to be paying more taxes for your expenses than you ought to. Here are the business expenses you can claim when filing your tax return.
1. Office Expenses
You can claim expenses on the items that keep your workplace up and running, including:
- Utility (water, heating, electricity)
Basic Office Supplies
- Stationery (pens and paper)
- Printing (printer ink and cartridges)
Hardware and Software
- Computer software to be used for less than 2 years
- Computer software requiring payment for licence renewal even if it will be used for more than 2 years
- Computers and printers can be claimed as expenses if you use cash basis accounting and can be claimed as capital allowances if you use traditional accounting
Other high-value purchases like equipment and machinery that you keep to use for your business, as well as office furniture, utility systems (light, gas, heat systems, etc.), and fixtures can be claimed as capital allowances.
Property Upkeep and Insurance
- Business premises rent
- Property insurance
- Decoration (paintings, antiques, etc.) that can be seen by customers and the public
- Repairs and maintenance of premises and equipment
Buying the building where you will conduct your work operations cannot be claimed as a business expense or capital allowance.
If you are to install or replace any of the equipment within your business premises, you can claim these as business expenses if you use cash basis accounting, and as capital allowances, if you use traditional accounting.
Do note that using any of these office resources for non-business purposes cannot be claimed as business expenses.
2. Home Office Expenses
Small to medium-sized business owners sometimes have to work from home, and there are expenses that can be claimed when doing so.
You can claim a proportion of your residential bills as business expenses, including:
- Mortgage interest
- Council tax
- General maintenance
You can calculate for these proportions by the number of rooms you use for work and the amount of time you spend working at home.
For example, you have five rooms at home and only use one for work and you have an electricity bill of £500. Because you work in that one room out of the five, you can say 10% of the bill, which is £100, is for business purposes.
If you only work in that one room at home for five days a week, you can claim 71% of that £100 as a business expense, which amounts to £71.
If you work from home 25 hours or more a month, you can just use the government’s simplified expenses system which calculates with a flat rate. The simplified expenses checker tool helps you know if you should use the system or if you are better off calculating expenses yourself.
3. Staffing Expenses
Hiring people for your business doesn’t just ease your workload. You can also claim certain business expenses when you have staff.
- Employee salaries
- Agency fees
- National Insurance contributions
- Clothing (uniforms, protective gear, costumes for actors or entertainers)
While entertainment for your customers cannot be considered business expenses, you can claim expenses on events held for your staff. Parties, dinners, and any such similar functions hosted for the purpose of entertaining your staff are tax-deductible expenses.
There is a limit, however, to how much you can claim as a business expense for such events. The annual cost cannot go over £150 per employee. This can cover multiple events within a year, as long as it stays under the £150 limit.
If any of your family members contribute to the work being done for your business, you can also give them a salary that can be considered a business expense. If they don’t have any other source of income, you can claim some or all of their salary as tax-deductible depending on where it falls in the income tax personal allowance brackets. For reference, income up to £12,500 has a tax rate of 0%.
You cannot claim the cost of hiring caregivers or domestic helpers as a business expense.
4. Reselling Goods
When you are in the business of creating products to sell, you will be spending on the entire production process. Here’s what you can claim as a business expense:
- Raw materials
- Goods for resale (stock items)
- Direct costs from producing goods
Goods or materials bought for private use cannot be claimed as business expenses. The depreciation of the equipment you use for the production of goods cannot be expensed.
5. Travel Expenses
There are times when you have to go to a meeting outside your office or on a business trip. Keep records of the following expenses to claim them on your tax return:
- Vehicle insurance
- Repairs and servicing
- Hire charges
- Licence fees
- Breakdown cover
- Train, bus, and taxi fares
- Hotel accommodations
- Meals on overnight business trips
The proportion you can claim for using your car/motorcycle/van for business can also be calculated using the simplified expenses flat rate based on annual business mileage of the vehicle.
The flat rate per mile for cars and goods vehicles is 45p for the first 10,000 miles and 25p for succeeding miles. Motorcycles have a flat rate per mile of 25p.
If you choose to claim your vehicle via simplified expenses, you must continue doing so for as long as it is used for business purposes.
You can choose to buy a vehicle for your business and claim it as a capital allowance. However, doing so means you cannot claim simplified expenses on it.
Your daily commute cannot be claimed as a business expense. Travelling to meet a client or visit a site can be claimed as a business expense, but it will be hard to argue the case if this travel turns out to be a common occurrence.
Paying for travel for the purpose of entertaining customers or business partners cannot be claimed on your tax return as a business expense.
6. Legal and Financial Expenses
Operating a business usually leads to accruing fees for accounting, bank transactions, legal issues, and insurance. Here’s a list of such expenses that you can claim:
- Hiring accountants, solicitors, surveyors, and architects for business purposes
- Professional indemnity insurance premiums
- Business bank, overdraft, and credit card charges
- Leasing payments
- Hire purchase interest
- Alternative finance payments
- Any insurance policy
- Bad debts (if you’re using traditional accounting and are sure you can’t recover them from the customer)
You cannot claim for the legal cost of buying property and machinery. However, you can claim these as capital allowances if you use traditional accounting. Fines from breaking the law cannot be claimed as business expenses. Repayments of loans, overdrafts, or finance arrangements are also not allowable.
Debts not included in your turnover or those related to the disposal of fixed assets (such as land, buildings, and machinery) are not tax-deductible as well.
Please make sure to properly calculate your bad debt, as estimates will not be accepted by the government. If you are using cash basis accounting, you can only claim up to £500 in interest and bank charges, and you cannot claim bad debts.
7. Marketing and Subscription Expenses
Promoting your business comes with costs that thankfully you can claim as business expenses. Make sure you calculate for the following on your tax return:
- Website costs (design, development, domain registry, hosting)
- Online campaigns
- Newspaper advertisements
- Directory listings
- Bulk mail advertising
- Free samples
You can also claim tax relief on subscriptions and memberships to trade or professional journals and organisations, as long as they are related to your business.
Payments to political parties and gym memberships cannot be claimed. Unless you are sponsoring a charity you cannot claim donations.
Worth The Effort
Filing your business’ tax return is an arduous task. Make the most out of the process by accounting for every single item you can claim as a business expense. It can feel overwhelming looking through all the records you have kept throughout the tax year, but it will be worth the effort to cut down on the taxes you have to pay and the relief you get from doing so.
If you need help with ensuring which of your expenses are tax-deductible, call us at 01634 540 040, or send us an email at firstname.lastname@example.org.